JPMorgan’s global markets strategy team said it now expects the Federal Reserve to raise rates in December, bringing forward its previous call for a hike in the third quarter of 2027. The bank added that September is also a live risk if inflation reheats quickly. In the same report, it argued that while commodities have usually delivered positive returns during Fed tightening cycles, the present setup carries a risk of repeating the pattern seen in 2022 rather than following the stronger historical norm.
JPMorgan shifts its Fed call after the latest FOMC meeting
The report said last Wednesday’s Federal Open Market Committee meeting left rates unchanged, in line with its economists’ expectations. What stood out was the number of dissenters: three hawkish members opposed the decision, one more than JPMorgan had expected, with Neel Kashkari joining the dissenters in what the bank described as a modest surprise.
According to JPMorgan, its natural language processing analysis showed that Chair Warsh’s prepared remarks leaned hawkish. Still, he did not endorse a clearly defined target, which the bank said weakened his anti-inflation credibility. Combined with his comments on the effectiveness of the Fed’s tools against inflation, that helped drive an accelerated twist steepening in the U.S. Treasury curve and a sharp rise in intermediate inflation breakevens, an unusual market reaction after an FOMC meeting.
The report said the first Fed hike is now expected in 2026. More broadly, JPMorgan argued that as the committee tilts in a more hawkish direction, the FOMC may face market pressure tied to doubts over whether Warsh’s hard line on inflation will translate into action. That, in the bank’s view, raises the urgency for other members to act in line with the Fed’s mandate. Its economists therefore moved their next hike call forward from the second half of 2027 to December this year, while flagging September as an obvious risk if inflation turns higher again soon.
Commodities were positive in past hiking cycles, except in 2022/23
JPMorgan said the Fed has started five hiking cycles since 1990: February 1994, June 1999, June 2004, December 2015, and March 2022. Each lasted roughly one to three years.
Across those five episodes, commodities generated positive returns in every cycle except the latest one. From March 2022 to July 2023, the sector fell about 14%, a sharp break from the earlier pattern.
Even so, JPMorgan noted that the Bloomberg Commodity Index Excess Return, or BCOM ER, initially followed the old pattern during that last cycle by moving higher relatively early on, only diverging materially from history later in the tightening phase.
Why the 2022/23 cycle broke with history
The bank said its earlier work had linked strong commodity performance during Fed hiking cycles to supportive macroeconomic conditions. The Fed usually begins tightening during periods of sustained growth, rising inflation pressure, and falling unemployment. Those same conditions often line up with solid commodity demand and low inventories when supply cannot keep pace.
JPMorgan argued that 2022/23 was different. The cycle arrived relatively early after the pandemic recession, and the Fed was far behind the curve. Inflation had already been pushed up by pandemic-era supply chain disruptions and crisis-driven fiscal and monetary stimulus, then intensified again in early 2022 after Russia’s invasion of Ukraine sent energy, fertilizer, and food prices sharply higher.
That meant supply-side pressure played an outsized role in pushing the Fed to raise rates by more than 5 percentage points. It also meant commodities entered that hiking cycle from unusually elevated levels. Concerns over sanctions-related disruption to seaborne Russian commodity supply helped lift the BCOM ER index by 25% in the first quarter of 2022.
Later, however, supply chains proved more resilient than initially feared. By mid-2022, and even earlier for some commodities, the supply risk premium had started to erode sharply. At the same time, recession fears implied by the inverted Treasury curve never fully materialized, but global manufacturing PMI did fall below 50 in September 2022 and stayed in contraction territory throughout 2023. JPMorgan said that weakened broader industrial demand and deepened the bearish price response during the 2022/23 hiking cycle.
The Fed backdrop looks like 1999, but the commodity setup looks like 2022
JPMorgan said the latest hawkish dissents reflect growing doubts inside the Fed over whether current policy is restrictive enough while the labor market remains tight and inflation sticky. Citing its U.S. rates strategists, the bank said different estimates of the real neutral rate suggest another 50 to 100 basis points of tightening may be needed to restore a restrictive stance over the medium term if inflation does not decline.
On that basis, JPMorgan sees the mid-cycle adjustment from June 1999 to May 2000, especially the tightening phase from November 1999 to May 2000, as the closest rates analogy to the current moment.
But it also said the commodity market backdrop is very different from 1999/2000. In that earlier cycle, BCOM ER rose 25%, with the BCOM energy subindex climbing more than 70%. Context mattered. The broader commodity complex had entered the cycle from a depressed starting point after the Asian financial crisis, the Russian financial crisis, and the collapse of Long-Term Capital Management damaged demand and risk appetite. In the first half of 1999, BCOM was roughly 35% to 40% below its 1997 peak. At the same time, oversupply and weak prices pushed OPEC and participating non-OPEC producers to commit to large output cuts in 1998 and early 1999, setting up a substantial oil market rebalancing under tighter supply discipline.
That is why JPMorgan said today’s policy backdrop may look like 1999, while the commodity market itself looks much more like 2022. Renewed inflation pressure is arriving alongside major supply chain disruption, with shipping through the Strait of Hormuz still constrained. As energy prices and production costs rise across the complex, the BCOM index remains close to its first-quarter 2022 record highs rather than entering a hiking cycle from depressed levels.
The bank said that even if any coming tightening cycle is much smaller than the 2022/23 move, when rates initially rose 5 percentage points from the lower bound, the risk remains the same in structure: a renewed fade in the supply disruption premium could again overlap with harsher financial conditions and produce a more muted, cooling response in commodities.
Energy: Hormuz flows and Chinese demand matter more than rates
For energy, JPMorgan said shipping volumes through the Strait of Hormuz and Chinese crude import demand may matter more than interest rates. Its base case remains fundamentally bearish on oil over the next 12 months, though it said there is still meaningful near-term upside tail risk if inventory buffers tighten again because of a longer disruption through Hormuz.
The bank’s baseline assumes Middle East supply gradually recovers through the rest of 2026. Under that assumption, Brent crude averages $80 a barrel in the fourth quarter of 2026, then falls to an average of $63 a barrel in 2027 as oversupply returns.
JPMorgan added that this forecast depends heavily on how quickly flows through Hormuz normalize and how inventories eventually return to normal. Even with weak Chinese imports, every extra month of conflict and lower-than-expected traffic through the strait raises Brent fair value by about $7 to $8 a barrel, according to the report. If disruption lasts three months, the monthly average price would rise to about $114 a barrel.
Precious metals: Gold is more exposed to a sharper rates repricing
In precious metals, JPMorgan said the sector is the most bearishly exposed to further Fed action. Gold is currently trading in a $4,000 to $4,200 an ounce range, about 25% below its January 2026 peak, and has already felt notable pressure from higher real yields and the shift toward pricing in Fed hikes.
The report said precious metals were weak in the 2022/23 hiking cycle, but the final damage was surprisingly mild given how aggressive that tightening was. One reason was strong support from emerging central bank buying, particularly across emerging markets, which offset rate-sensitive ETF outflows and broke the usual correlation between gold prices and real yields.
JPMorgan said the current backdrop looks different because broader demand outside that segment has cooled: central bank buying is much narrower in breadth, retail interest is concentrated elsewhere, and private bank and Asian physical demand are soft. That leaves rate-sensitive ETF demand back in the driver’s seat. If markets start pricing more than the roughly two hikes already embedded in OIS forwards, the bank said gold could break well below $4,000 an ounce and trigger a deeper technical move toward $3,500 to $3,600 an ounce.
Base metals: firm for now, but PMI remains the key watch point
JPMorgan’s view on base metals is more constructive for now, though it said manufacturing PMI remains the key variable to watch. Industrial metals are still below the war-driven highs reached earlier this year, but they are entering the coming hiking phase near their highest levels since 2022.
The bank said that still looks reasonable at this stage. Global manufacturing PMI rose above 52 from March, and although it eased slightly in June and July, it continues to signal a strong pace of global manufacturing expansion. On the micro side, LME registered copper inventories have now fallen below 100,000 tons during the ongoing contest for refined copper units between China and the U.S. JPMorgan said its analysis shows price behavior has historically been asymmetrically bullish below that threshold.
The bank kept its base-case outlook for industrial metals in the second half of 2026 bullish, with its highest conviction on copper. Tight mine supply, low inventories outside the U.S., and what it described as bipolar competition for copper units leave risks skewed to the upside, pointing to $15,000 per ton.
Still, JPMorgan said a more aggressive Fed hiking cycle could bring a 2022-like echo back to the sector by early next year, especially if support from manufacturing trends fades and a strong U.S. dollar remains an additional headwind.